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What Is CTC in India and How Does It Differ from Gross Salary?

CTC India

While business owners in many other countries may use terms like “gross salary” and “net salary” when referring to an employee’s salary, “cost to company” or CTC is the most common term used in India. This term includes the direct and indirect costs associated with paying an employee. Business owners can consider the full cost of employment when considering whether to hire new staff or outsource workers.

What Is Gross Salary?

Gross salary is the amount of compensation an employee receives before any tax or deductions are taken from the amount. However, this direct cost does not fully encompass all of the costs that an employer will pay for an employee. Therefore, the CTC India is a better metric to determine the complete cost of employment.

What Goes into the CTC in India?

The CTC in India consists of many different expenses. However, each situation is different, so some expenses may be incurred in some situations and not in others. The costs that go into the CTC include:

  • direct benefits
  • indirect benefits
  • saving contributions

Direct Benefits

Direct benefits are paid to the employee or on his or her behalf. They include:

  • CTC Salary
  • The CTC salary is the same as a gross salary. It is the direct compensation paid to an employee before any taxes or other amounts are deducted from an employee’s pay. The remainder of direct benefits are different allowances that employers may provide as an additional benefit to employees in addition to their base salary.
  • Special/City Compensatory Allowance
  • This allowance is a fixed sum that is paid for all employees working in the same city. It is calculated as a percentage of the employee’s base salary.
  • Bonus and Incentive Pay
  • India employers may offer special bonuses or incentive pay to help motivate employees to meet certain performance objectives.
  • Dearness Allowance
  • The Dearness Allowance is a special amount that some employers in India offer employees to compensate them for inflation and cost of living increases.
  • Medical Allowance
  • The CTC also includes the employer’s cost to provide health care insurance for the employee, his or her children and his or her parents, if applicable.
  • Conveyance or Transport Allowance
  • This allowance helps compensate workers for their travel to and from home and work. This type of allowance is usually only provided if there is no other transportation the employer provides.
  • Leave Travel Allowance
  • This allowance pays for employees in India to travel.
  • House Rent Allowance
  • If you pay your own rent in India, your employer may provide an allowance for this purpose.
  • Telephone Allowance
  • This allowance may cover the cost to have home or mobile phone service, as well as broadband internet connection provided through the phone.

Indirect Benefits

Most of the other expenses that make up CTC in India include indirect costs of paying an employee.

  • Electronic Duty Rates
  • Duties for electronics imported into India may be as high as 40%. Therefore, employers should consider this rate as well as the cost of supplying their employees with electronic goods, such as:
    – Desktop computers
    – Laptops
    – Tablets
    – Mobile phones
  • Health Care Costs
  • Costs for life insurance provided to the employee should also be considered, along with any premiums paid for health insurance. Any dental or vision costs may also be included.
  • Company Leased Accommodation Allowance
  • Some employers offer to pay the full amount of monthly rent or a portion of it as an added employment benefit to entice workers from other countries or areas to relocate for the job.  With this type of allowance, your employer pays the rent directly to your landlord. Additionally, some employers pay for furniture to furnish the home.
  • Taxis for Office Commute
  • Employers may pay for vouchers or reimburse employees for cabs to get to and from work.
  • Subsidized Meals
  • Some employers provide employees with free lunch or snacks at the workplace, or they offer meal vouchers. The extra costs for these benefits should be considered when calculating the total cost of employment.
  • Loans to Employees
  • Some banks in India let employees secure car or home loans at subsidized rates. The difference between the market and subsidized interest rate is included in the employee’s CTC.
  • Income Tax Savings
  • Additional, tax-free expenses may also be included in the CTC in India, including per diem allowances.
  • Office Space Rent
  • Employers can apportion part of the office rent they pay to an employee to symbolize the cost to house the employee. For example, if the employee worked in a 10×10 cubicle, the employer could divide the amount of rent by the number of cubicles and assign one cubicle’s portion of the rent to the CTC.

Saving Contributions

The final category of expenses that make up CTC in India include employee retirement saving contributions paid by the employer, including:

  • Superannuation
  • Under this retirement schema, the employers contributes a specific amount of money into the employee’s retirement account. The employee is able to tap into these contributions when they retire or leave the organization.
  • Employer Provident fund contribution
  • Under this arrangement, the employer provides a specific percentage of the employee’s salary to a Provident fund account. The employee also contributes to the fund.
  • Gratuity
  • A gratuity of just under 5% of an employee’s basic salary is required by Indian law. These funds cannot be withdrawn before five years. If the employee leaves the company before five years, they forfeit their gratuity pay.

Expand into India with Professional Help

As you can see, there are many expenses that go into the cost to company in India. The experts at Horizons can discuss your obligations as an employer. We also offer a flexible India PEO – employer of record and staffing option that allows you to delegate the employer of record obligations to us while having day-to-day control over your workers.

We can help you expand your company into India and keep you advised of the latest changes in the law. Contact us today to learn more.